US Dollar: Summer Consolidation Continues Before Potential Bullish Resumption

Good morning, everyone.

As you know, the US dollar has seen some retracement after fresh selling yesterday, following the , which came in lower than expected. We got the figures at 3.5%, down from the previous 4.2%, and much lower than the expected 3.8%. Of course, the main reason for this lower inflation is that came significantly lower back in June.

However, keep in mind that crude oil is now back in a recovery mode. The US launched fresh attacks this week, and President Trump even said that strikes will continue unless Tehran returns to the negotiation table. This remains a very important risk for the markets, as higher crude oil prices could once again have an impact on US yields and the US dollar.

Looking at the updated wave structure, notice that despite the recent sell-off, the decline still looks corrective in my opinion. It’s overlapping, and you cannot count five waves down, which means that this could just be a more complex correction. We are still tracking a possible W-X-Y formation, with the second part of the correction now in progress. Ideally, it could become a bit deeper, with support around the 100 level, which is also an important psychological figure.

For now, it looks like we are still in the middle of the summer range, with most FX pairs stuck in consolidations. However, once we get another completed ABC decline on the Dollar Index in wave Y, and at the same time US yields also complete their own three-wave recovery, that’s when the dollar could return back to a bullish mode.

GH